Corporate Taxation India

A guide for Corporate Taxation and the nuances of different corporate tax rates in India. Learn about company’s income determination & tax liabilities.

Corporate tax is levied on the income earned by the companies, whether domestic or foreign. The Income Tax Act, 1961 is liable for charging corporate tax in India. Worldwide income of the companies registered in the country is taxed under this. Whereas in the case of foreign companies, only the income received or accrued in India is taxed under corporate taxation.

What is the domestic company? Any business that has originated in India or any foreign company that has control & management entirely situated in India is the domestic company. Originated in India means registered under the Companies Act 1956.

What is the foreign company? Any business that hasn’t originated in India and has control & management situated outside India.

Determination of tax liability: The residential status of a company identifies its tax liability on income earned. A company is a resident in India if it's an Indian company or its control & management is situated in India. All the income earned by a resident company is liable to tax under corporate tax law.

As a result of this, the issue of double taxation may occur. It refers to the taxing of the same income twice by the company, because of the different tax laws of different countries. Section 90 & 91 of the I.T. Act provides relief against double taxation.

Components of Income of a company: The total income of the business that is put to tax under corporate taxation is inclusive of:

1. Profits and Gains from the Business & Profession;
2. Capital Gains;
3. Earnings from House Property;
4. Earnings from other sources like interests, lotteries, etc.

The income calculated is adjusted as per section 79 set off and carried forward of losses in companies and total gross income is ascertained. The deductions under Chapter VI-A are made from the total gross income to arrive at the net income. The computed value of net income is exposed to tax.

Note: Salary Income is excluded from company’s income.

Dividend Distribution Tax (DDT): It is the tax charged on distributed income of the domestic company. Section 115-O of the Income Tax Act governs the tax law related to it. DDT is levied in addition to the tax on income. The current rate of DDT is 15%. Surcharge @ 12% and EC & SHEC @ 3% is also applicable on DDT.

Note: As per the Budget Update 2016, if any shareholder whether individual or HUF, receives dividend more than Rs. 10 Lakhs; then DDT will be charged at 10%.

Minimum Alternate Tax (MAT): MAT was made applicable because companies find a lot many ways to escape tax payments. Through minimum alternate tax companies pay a token of tax. Section 115JA of Income Tax Act imposes MAT on the companies. All the companies having tax payable on total income less than 18.5% of their book profits (plus surcharge and SHEC) are liable to pay MAT. Subject to some conditions, MAT can be carried forward and adjusted against regular tax. It can be carried forward for subsequent ten years period. MAT is levied on all the companies, including foreign companies having income sources in India. A few companies are exempt from its purview, viz. companies having life insurance business (Sec 115B) and companies having shipping income (Sec 115V-O).

The applicable corporate tax rate in India is as under

a. Domestic Company

Note-

1. The surcharge is levied on taxable income; subject to limited relief, i.e., income exceeds Rs. 1,00,00,000.
2. * Income tax rate is 29% if turnover for the FY 2014-15 does not exceed Rs. 5,00,00,000.

b. Foreign Company